Branson's Virgin Cruises could be banned from U.S. ports

MARCH 12, 2015 — Should a suit filed yesterday succeed, Sir Richard Branson's Virgin Group could face hundreds of millions of dollars in damages. And it could be enjoined from bringing any ships built for its planned Virgin Cruises (see earlier story) into U.S. waters or U.S. ports and from selling passage on them to U.S. consumers, wherever in the world they may be deployed.

The suit has been filed in the Miami Division of the U.S. District Court for the Southern District of Florida by Colin Veitch, who stepped down as CEO of Norwegian Cruise Line in 2008, and his VSM Development, Inc. It names as defendants Virgin Management USA, Inc., Virgin Management Ltd., Virgin Group Investments Ltd., and Virgin Cruises.

Mr. Veitch says that the idea for project was his and that Virgin stole his intellectual property and squeezed him out of a deal that could have brought him hundreds of millions of dollars.

According to The New York Times, Virgin has released a statement saying: "Richard Branson and the Virgin Group first looked at the cruise market in the late 1970s, and our current team has been exploring the opportunity for more than a decade. Over the years, we have been in discussions with a number of parties including the plaintiff, and those discussions ceased in 2012. We strongly believe the claim has no merits."

Mr. Veitch is seeking damages that could be in the range of $300 million and an injunction that requires Virgin cease all activities designed to lead to the construction of the Ultra Ships it has announced, and, furthermore, that if Virgin proceeds, regardless, with building these ships, they be enjoined from bringing them into U.S. waters and US ports and from selling passage on them to US consumers, wherever in the world they may be deployed.

According to the complaint filed with the Miami court by Mr. Veitch and VSM Development, Mr. Veitch devised what is referred to as "The Ultra Ships Plan" based on his experience in introducing Norwegian's Freestyle Cruising and with one of the first ultra large cruise ships, Norwegian Epic.

The complaint says the case "is an action for misappropriation of a business idea, business plan, and business that was fully developed by Mr. Colin Veitch and presented to Virgin pursuant to non-disclosure, non-use, and other agreements. In 2010, Mr. Veitch discovered that the way to break the barriers to entry in the cruise industry was constructing and financing two new 'Ultra Ships.' Ultra Ships are massive cruise ships that feature an array of attractions, generate their own consumer demand, and command premium pricing and onboard revenue. Mr. Veitch determined that a fleet of two Ultra Ships alone would enable a new entrant to successfully shatter the very strong barriers to entry to this well protected, highly profitable industry, and reward pioneering investors with extremely profitable returns.

"After obtaining an agreement that Virgin would not use Mr. Veitch's ideas and business plan without his consent, Mr. Veitch presented the idea to Virgin in early 2011, and Virgin quickly signed on as Mr. Veitch’s brand partner."

With an agreement with Virgin in place, says the complaint, Mr. Veitch spent the next year assembling a team of industry experts to design the ships, signed a letter of intent with a German shipyard [Meyer Werft] to build the ships, obtained a letter of intent with a German bank to provide debt financing for the ships, presented to and secured the support of two German government ministries responsible for providing export credit guarantees to the banks providing the debt financing, and completed the management presentation and other materials necessary for the road show to enlist the equity investors.

Virgin's founder Sir Richard Branson, recorded a video for the road show expressing his and Virgin's full support, saying among other things that "the cruise business is also strategic and important to the growth of Virgin. Cruise has the potential to be one of our biggest, sexiest businesses, hence our excitement."

However, upon recognizing the potential for Virgin Cruises to be one its "biggest, sexiest businesses," asserts the complaint, "the dark side of Virgin quickly emerged" and "immediately after Mr. Veitch secured the commitments from the shipyard to build the ship and the bank to finance the ship, Virgin sought to turn the Veitch-Virgin Agreement on its head."

Virgin's proposals, says the complaint, "would have changed Mr. Veitch's role from that of the founder and fully vested owner of the business, to an employee -- indeed an indentured servant -- whose ownership and rewards depended completely upon Virgin's whims."